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No good signs for wheat bulls

Wheat is still holding trading range lows, but it seems to prefer the bottom of the range instead of the top – not a good sign for the bulls, particularly as we head into mid-October when seasonal highs tend to form. 

Rains in the southern Plains are also pressuring new crop futures, although it looks like the central Plains and the far West will again only see light precipitation if any at all. Big plantings are still expected, so rains and warmer temps will only add to the pressure. 

For now, as long as trading range lows hold, I have to stick with the bullish side and look for wheat prices to at least test the range highs. To break above the range, we’d likely need further deterioration in Australia and probably some harvest problems in Argentina.

Meanwhile, grain markets spent the early part of last week waiting for the supply/demand report on Thursday, feeling comfortable with wheat stats so far, but anxious about corn numbers. They were clearly expecting negative soybean numbers as the market continued to decline into the report.

Wheat production was basically unchanged at 2.269 billion bushels. Feed usage was increased 95 million to 315 million, the largest feed wheat usage since ‘98/99. Exports were lowered 50 million to 1.15 billion, down 12% from last year. Ending stocks were lowered 44 million, less than trade expectations but still the lowest carry-out in four years. 

World wheat production was lowered 6 MMT, and carry-out dropped 3 MMT. Australia saw a 3-MMT decline, and now sits at 23 MMT, according to USDA. Most estimates coming out of Australia, however, already have their crop down to 20 MMT at best, with some below that level. USDA lowered Russia and the European Union's production 1 MMT each. World feed usage of wheat was increased by 2.4 MMT. 

Corn planted acres were increased 500,000 while harvested acres rose 300,000. Average yield was lowered .8 bushels per acre to 122.0, taking total corn production to 10.7 billion bushels, the smallest crop in six years. USDA lowered corn exports by a full 100 million bushels, taking total exports to 1.15 billion bushels, the lowest since ‘74/75. Ending stocks of 619 million bushels were much lower than expected at barely pipeline supplies, and are the smallest since the ‘95/96 crop year. Most traders feel that harvested acres are actually much less than current estimates, and production will continue to decline in future reports.

Soybeans planted and harvested acres were increased 1.1 million; yields increased 2.5 bushels an acre taking total production to 2.86 billion, up 226 million from last month’s estimate. An increase in exports of 210 million almost completely offset the production increase, and ending stocks were up only 15 million to 130 million bushels, the lowest since ‘03/04.

The very bullish corn numbers caught traders by surprise and prices shot higher in response, pulling wheat and soybeans higher as well. But the positive response to the report was short-lived as the next day saw heavy selling throughout the complex. Rumors of further U.S. purchases of Argentine corn were initially to blame, but then talk of a major European fund liquidating in the grains also became an excuse. Whatever the reason, the grains couldn’t hold, and obviously the bulls didn’t have enough ammo to support the market. 


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